Automotive Axles Limited (505010) Earnings Call Transcript & Summary

Ladies and gentlemen, Good morning, and welcome to Automotive Axles Limited 2Q FY '22 investor call organized by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is recorded. I would now like to turn the conference over to Mr. Sailesh Raja. Thank you, and over to you, sir.

Yes. Thanks, Aerie. Good morning to all. On behalf of B&K Securities, I would like to welcome you to the Automotive Axles 2Q FY '22 earnings call. From the management side, we'll be hearing from Mr. Thimmaiah, MD and CEO of Meritor India; Dr. N. Muthukumar, COO of Meritor India; and Mr. S. Ranganathan, CFO, Automotive Axles. So we will commence the opening remarks with Mr. Thimmaiah, following which we'll have an interactive Q&A session. Over to you, sir.

Yes. Thank you very much in Sailesh, and good morning to all of you. And thank you very much for participating in the Automotive Axles investor call. So as always, I will let Ranganathan and Dr. Muthukumar to take you through the quick presentation to give you an overview of what's happened in our company last quarter and what the future looks like, then I will pitch in further question-and-Answer session. Over to you, Muthu.

Thank you, Thimmaiah, and good morning, ladies and gentlemen. Thanks for joining today. I trust all of you are safe and you had a great Diwali. We're going to look at the snapshot of FY '21, what we have done. FY '21, we just completed the year, so the first 6 months of the year, and we had a INR 913 crore revenue with about INR 73 crores of EBITDA, 8%; and a PBT of about INR 30 crores, 3.3%. You all know that we have a manufacturing location at 4 locations, Mysore, Jamshedpur, Pantnagar and Hosur. And for information, all these sites are fully back into operation, closed with pandemic and all the sites are in full operation now. We know equity share of Meritor is holding 35.5% and Kalyani Group is holding 35.5% and the rest are with the public. And we have retained back to about 2,000 plus employees in the system. And our major customers are in commercial vehicles, specialty, and defense and OEM business. You all know that we have a -- our products are axles and brakes and suspension is the one which we are penetrating in a smaller way now. If you look at the market position, we continue to be the #1 independent axle manufacturer and #2 in brakes. Over to next slide, Renuka. We just want to give you a COVID update. I think it is a good that post June India started improving. And we're very, very happy that more than 100 crore people have been vaccinated. At least to date, 99% of the employees who work in the factory at all levels and all categories of employees is vaccinated. The remaining 1% of the people is basically the one who got impacted and who are in the cooling period to take the vaccination. Some of the key initiatives the company has taken is the vaccination camp for employees and families [indiscernible]. We have taken the vaccination camp for the local community here and organized through our occupational health centers, create an awareness campaigns for sensitizing employees and their families on COVID appropriate behavior. And of course, regular communication with the leadership team to keep the people engaged. And I also wanted to tell you that on our operations, the people are working from office only across all the locations. And as service to the society, your company has set up an 86-bed facility in Mysore giving the COVID treatment in the super specialty plant. And more than about 540 people have got treated here and more than about -- it's about more than 5,000 adults -- 5,000 beds of people have taken the treatment here. We have donated the mobile laboratory for improving the diagnostic and to reach in the rural area so that early reduction and identification and the quarantining of the people. This has really helped the local management. More than INR 3 crore have been donated to PM Care Fund, and donated oxygen generation plant to a hospital in Coorg nearby district, where more than 30% of oxygen procurement of the hospital is being generated from this oxygen generator. Going forward in terms of going to help them in the long term. And then, we have also updated the occupational health center for our employees such as SMART KSHEMA a 24/7 oxygenated facility bed as a preventive measure and as a backup. Next slide, Renuka. Here we have a -- supplying to the diverse end markets and various customers. We are in the truck business. We are in the trailer business. We are in the coach and buses and started applying to off-highway military business and a good amount of aftermarket. And you know the major customers that we have. And we are also working with the new players who are coming up in the new generation vehicles be it in LNG, be it in electric vehicles and started interacting with them to make sure that we win the business there to. Next slide. We have a full product offering from 10...

Sorry to interrupt, Mr. Muthukumar.

Yes.

Your voice is a little low. Can you speak a little louder?

Absolutely. I'll speak a little louder. Can you hear me now?

Yes, now better.

Okay. We have most comprehensive products for axles and brakes offering right from fixed run vehicle to hub production axle, which is a new generation axle. We also launched the product, value-engineered product like EVO product as a value engineered product. We are working on tandems of 160 axle. And if you see that the entire market we sliced into smaller product of light, medium, heavy and extra heavy, and we have a product offering to the various customers across all segments, which makes not only us competitive but also our customers competitive. Next slide, Renuka. And our plant has converted into a 4.0 enabled. The assembly plant, which is the final affably of all the products come to the plant and going to the customers. It's already on the digitalized and do it on the Internet of Things, including the real-time monitoring capability, which is really improving the efficiency of the plant operations, and which you could see that we continuously were able to improve the performance in terms of the quality and in terms of the cost. Next slide, Renuka. The digital taking from the digital assembly line that we are going backwards now and also going into the rest of the assembly as a digital and converting one by one line. We have a very clear acquisition by 2023, 24 most of our plant will be -- IoT enabled. But being a 35-year-old plant, we are taking it step-by-step and trying to see that the entire plant is digitally up in the years to come. Next slide, Renuka. And most of the plant, we are having a Pokayoke to make sure that the defects doesn't flow to the next level. But of course in terms of the technology initiatives, we have a latest technologies on our welding machining and gear manufacturing and assembly process, which helps the organization to be a cost competitive, more dependent on the process dependent rather on the people dependent. And that's how it is going to help traceability for the end customer when it comes to personnel performance and reliability. Next slide, your company will continue to invest on related improvements to make sure that we always stay ahead and customers always trust us in terms of our quality and reliability. With that introduction, I will hand over to Mr. Ranganathan CFO, to touch upon the financial highlights. Over to you, Ranga. Thank you.

Thank you. Thank you, Muthu. Very good morning to you all. Wishing you again all a Happy Diwali and meeting our last quarter. So a quick snapshot of the financial performance this quarter, the overall revenue is about INR 310 crore as against INR 171 crore last quarter -- last year, sorry, same quarter. So the revenue has increased year-on-year by 81%. And EBITDA was 7.5% end of this quarter as compared to 6.6% last quarter, as seen here. And as far as PBT is concerned, we closed at 4.5%, we closed to about 1% the same quarter last year. So overall basis, with the growth of business, the margins is also improving. And as all of you know that they continue to operate with the no working capital borrowings. The commodity price increases as consistently happening in the system, it puts a huge pressure on overall profitability as a percentage to sales as the base impact in the current financial year. Of course, our focus continues to be on the cost control and the process improvements, which drive -- which drives long-term cost competitiveness to us. Next slide. Yes. As one of the key actions as part of our strategic initiative, we continue to focus on the business growth strategy. Bringing the new businesses and trying to optimize the opportunities in the pipeline. And product development, launching new products continuously to the market and is always one of a key focus. And drive eMobility business as a kind of long-term product strategy as well as the market requirement, we're always there. And definitely, all success comes with the process -- the manufacturing process excellence, that is the Industry 4.0, driving the Industry 4.0 is one of the key objective of the strategy. And of course, we have the capacity as the market grows, we have enough capacity to cater the market demand. The cost measures, as all of you know that the cost control is basically in all aspects of the cost, both from a material and the other variable costs through the fixed cost we always have -- management continue to focus on it. And definitely one of the key strategies of our M25 strategy. And definitely, as I mentioned earlier, the commodity price is giving pressure. But definitely, if we are looking towards the initiatives beyond this temporary pressures to see the performance and overall EBITDA as both in terms of an absolute value and the percentage is growing up. Safety is one of our key and our focus all the time and the people's safety is one of the key, as Muthukumar has explained during the COVID time whatever measures we are taking it in terms of continuing to focus on it. But nevertheless, we also try to be -- make sure that people are safe. More than 99% of the staff is totally vaccinated. And also, we continue to train and also focus on all operational safety measures to ensure that people are safe from COVID as well as the operational activities. So that's a broader perspective. Next slide, Renuka. Yes. As a matter of growth strategy, all of you know that the Slide 1, which shows, is about how we performed, how the market and how we performed against the market. So till last year, all of you know that the overall market is about 197 and our revenue there is about INR 913 crore. So we generally go along with the market and trying to perform better than the market growth. This year, '21, '22, the expected market is about 246,000 vehicles. And we are hopeful that we will always focus on it to perform slightly over the market level. That's always our strategy to it. So the Mission 25 Strategy, grow revenue, enhanced profitability, new product wins, operational excellence and creating overall value to the customers is already on the track and all the leaders in the organizations are taking the individual responsible to drive this. We're still focused with the technology developments, still focused with the customer, to add value to the customer. So with this closing remarks -- with this, the presentation comes to an end, and we can take up questions, if any, from the shareholders.

[Operator Instructions] We have first question from the line of Mr. Gokul Maheshwari from Awriga Capital.

My question is the market leader in the CV space generally does the source its axle requirements from its in-house facilities, are you seeing any breakthrough with respect to them trying to outsource this and using you as a vendor partner? If you could comment on that.

Thimmaiah, you want to answer, Thimmaiah.

No, I think Muthu. Yes, let's log out from the Microsoft Teams. I think it's echoing. So sorry, I couldn't understand the question. Is it possible to repeat? Your voice was a little weak.

So the market leader in the commercial vehicle segment, which is Tata Motors largely sources its axle requirements from its in-house facilities. Are you seeing any breakthrough with respective them now using vendors partners like you to meet axel requirements?

At this point of time, as I continue to talk about this subject in probably all the investor relationship calls. We believe someday it would happen. Still, we don't see that strategically, they are making the decision. But I think with so much of activity happening on electrification and electrical vehicle and hydrogen vehicle, et cetera, I think their focus should soon shift from producing and manufacturing and designing these subcomponents or subsystems by themselves and focus more on the futuristic vehicle technologies. I think that's probably my personal view is it's like the cornerstone now. It could turn around as soon as possible. That's what I feel. But as of now, we still do not see they are taking a strategic decision to move out of making their in-house axles.

And secondly, could you just comment in terms of where are we in terms of the CV cycle or your own interpretation of the market? I'm not talking from a quarter perspective, but more from 2 to 3 year perspective.

I think, my personal view based on all the discussions and inputs and indications we have from various OEMS, our peers and suppliers and the market dynamics. We have already come out of the lowest levels. If you recollect, '18-'19 used to be the commercial vehicle peak year at around 265,000 vehicles, 7.5 tonner and above. And then, unfortunately, because of the 1-year of market downturn and then the 2 year of pandemic the market went down as low as 170, 180 level. And this year, we are expecting it to be at around 300,000 level. So I think it's all upward right. Unless there is a major pandemic related impact hits the market. We personally -- we all believe that it's all month-over-month improvement is going to happen. And within next maybe 18 months or so, we should see the market going to touch the peak levels.

Next, we have questions from the line of Abhisar Jain from Monarch.

Just wanted your view on the gross margins. We've seen that the gross margins have dipped substantially in H1. And I think this is because of unprecedented rise in the steel and other raw material. But how is the pass-through efforts now? And would it be fair to say that we can get back to our normal average gross margins, which are around 31%, 32% in, say, 2 to 3 quarters.

Maybe Ranga, I will answer this, maybe if you want, you can add because this is a little bit of a high-level strategic fund. We have a -- on the commodities side, as you all know, commodity is going through an unprecedented escalation month-over-month in last few months, and we don't see it as getting softened. Maybe I get an indication that I think it will start softening in the coming quarters. That said, we have 100% back-to-back pass-through with the customers. There are some delays happens at some point of time because of the current economic and financial conditions of all the customers, we have a back-to-back arrangement. But one thing I want all of you to be aware of is, the gross margin and our EBITDA is a percentage of everything, right? So when the commodity settlement has increases and commodity pass-through customer user, it goes to our top line and it -- the same amount comes to our bottom line. So we call it as a base impact. The percentage recovery doesn't -- even though we get the complete absolute value back from the customer, but that will have a base impact. And in terms of percentage terms, we will see a deterioration in our EBITDA, unless we do a significant work in our cost reduction activity, which is what our focus area is. But to answer your question, whether we'll get back to that level of gross margin? My answer would be that is our endeavor, and we are trying to get there, and we are confident that we should get to that level pretty soon. And it's not going go through the commodity settlement from customers, that's through our internal cost reduction effort because commodity settlement, anyway, the customers are paying us. But the only thing is the base impact of erosion of percentage, in terms of percentage that we have to work with our internal productivity improvement, cost reduction and bridge that gap.

And then what time frame would you put that -- to get back to that level? Would it be more than 2 quarters? Or...

No. I think it is also depending upon a little bit of market upturn. If you really see, if you're comparing 2 or 3 quarters, we are still at around 60%, 70% of our good times, when we used to have. And we are expecting that the market will start improving. Maybe I would say 2, 3 quarters, probably. Again, it's all a little bit of market support we need.

And sir, it will be really helpful if you can guide a little bit on the export business. What percentage exports we would have had in H1 and what is the target by FY '23 or '24 that we would want to have in export revenue in the total revenue?

Muthu, you want to answer that? Normally, we don't give the split, but I'll let Muthu answer that question, please.

Thank you, Thimmaiah. Exports, we are now currently exporting into Europe currently exporting into North America, South America and to China. It's becoming extremely competitive when we are going to -- what is the biggest impediment for us is when we are making it as a fully finished axle, the logistics cost and what has gone up has [indiscernible] impediments of it. So we are focusing more on subsystems and components that we add value and doing the specialty products. At this point in time, I don't want to give exact number, but roughly around 8% to 10%. Correct me if I'm wrong, Ranga, we will export segment. We wanted to increase it over a period of time, but in reality what had happened is the impediments in terms of -- and we make only the specialty products, which really people feel that there is a value addition in terms of the quality that we do it from India. Otherwise, making it closer to the customer because of the majority of varieties that was able to move on, but we are attaining to move into at least in about 15% to 20% over the coming years.

Why I'm asking it is and because it will be significant is that right now, we are at a low end of our top line because of the industry and the CV volumes being low. As the industry recovers, which is your expectation also, the top line itself will be higher and then export being in double digits of that number will be a significant growth from today's number. So is that right to assume and hope for?

So I think I fully agree with you that it is definitely going to help, but the amount of product development that we need to do to get into those products because the same product is not being used in India, and they put a significant amount of our investment for product development that we need to go through. So we know that once the market comes back, we cannot say that then we -- the recycle of what domestic cycle, what we already committed to the customers, we need to hold the capacity here also because we can't lose the domestic customers also. So we will continue to work on a sustained business for export and try to see that how we can feed it. Ultimately, the people have to buy it for our reliability and quality. So we'll be getting into those niche markets, which really help us, an advantage to expand our margins.

And sir, last thing on suspension business, would you be able to...

Mr. Jain, sorry to interrupt, our request. Can you -- okay, you can continue with your question.

Just this last one. Sir, if you can give any guidance on how the suspension -- slipper suspension business is panning out? And any targets there for the next few years?

I mean suspension, as a business, we introduced this. We got it done. There is a value addition that is coming from -- to the end customers on this product. But at this point of time, when the market is so volatile people doesn't want to pay the extra price to get this. Our suspension what we have introduced in the retail, called the slipper end suspension, which is the life cycle cost of the product is less than compared to the existing suspension. But currently, because of the market situation, the customer is not willing to pay the extra price, and we don't want to do have a distress sale. We have applicated our product with the new applications of BS-VI and working with the customers. But in reality, you know there is there are many challenges that we have. The commodity prices are going up and OEMs are not willing to pass on that commodity prices also to the customers because of the market and overall capacity that's available. So I believe that we need to wait for some more time, maybe a year or 2 when the market is going to come back. And when really, the end customer is going to pick up, they will do. At this point in time, the customer sentiment is, they don't want to pay that extra -- even though their life cycle cost is less. People are not even replacing their trucks and they are using the spare parts to manage the trucks to keep some more time. So still the sentiment comes back, it's going to be difficult. But we believe that in the next 6 months, things will come back. And there are certain [indiscernible] application where out of -- even though we are selling a little. Maybe last quarter, we sold about 250 suspensions, where the customer has specifically asked for this product. There are a few customers who value it. But by and large, giving it in across, it's going to take time and the market need to mature.

[Operator Instructions] Next question is from the line of Mr. Gaurav Agrawal from Bowhead Investment.

So just 1 clarification that I wanted to get. I noticed that in the related party, a lot of our sales will go through our sister company, which is unrelated to the listed company, which is the Meritor HVS. Just I wanted to understand the reason for such a kind of setup and what kind of value addition is being done in that company? And what kind of margins do they make? If you could help me clarify on that side.

Okay. No, I think we have answered this in many investor calls, but I'll still take it. So actually, Meritor in India, if you see that historically, Automotive Axles is a joint venture between the Kalyani group and the Meritor since last 40 years. And also the Meritor HVS is a joint venture from the past, I think, around 30 years. So historically, the organization are in India business is set up like that. So all the product development activity is because of the Meritor is involved in the IP, et cetera, resides in Meritor HVS. And they are the ones that take the sales and marketing activity for the entire product. So that's the reason most of the sales are passed through the Meritor HVS. That's the arrangement, which is historically happening. But that said, this is not just Automotive Axles is not just a contract manufacturing kind of an entity. It is an arm length based transfer pricing and arm length based pricing between the 2 companies, depending upon how the market and depending upon the cost structure, et cetera. So that's why you see that the Automotive Axles' profitability fluctuates with the market, with the volume and it's happening, it's not constant. So this is an arrangement, which is there since the inception of the joint venture, and that's the reason it is continuing.

Second question and the last question from my side is, since you expect CV volumes to go back to their peak season, which were in FY '19. So let's say, hypothetically, if they were to go back to their peak and -- in FY '19, we did sales of around INR 1940 crore and PAT of INR 122 crore. And with the kind of initiatives that we have taken in the last 3 years, having more products and doing more things, taking more initiatives. So whenever the volumes go back to their peak, what kind of revenue on PAT can we expect because of the initiatives that we have taken and all the other things like that.

No. I'll just explain the high level. One thing I can tell you is we will be growing faster than the market that we can tell very upfront. And when the market peaks goes back to our -- goes back to the highest level in 2018, '19 level, we will definitely be on what we did in terms of revenue. You can even see that in the current outlook itself, right? What I'm seeing is to probably around INR 300 crores or so at approximately the market volume is 60,000 level. So even though the market has dropped to significant level, I think we are -- overall, we are able to not drop as much as the market has dropped and when the market is picking up, we are doing better than the market in general. So to answer it simply, yes, whenever the market comes back to that peak level, our revenue. That's what our work is. We are working, and we are very confident that we should outperform the market.

So what about tax since the tax rate has also come down from 34% to 25%. So is it possible for us to do INR 200 crores kind of tax in next let's say 24?

Ranga, you want to answer that?

Come again the question, please.

So I'm saying, sir mentioned very good guidance on the revenue side. That was very helpful. I'm asking in terms of PAT. In FY '19, we did INR 122 crores PAT and that time tax rate was 34%, which has come down to 25%. So with what sir has mentioned, can we do a INR 200 crores kind of PAT in FY '24 or FY '23, wherever the peak volumes of season comes through?

Yes, definitely, you see, the -- improving the profitability is always our focus on. In terms of absolute values, probably, definitely, we will improve compared to the previous. Definitely, the tax benefit, whatever the based on the lower tax benefit, definitely that flow into the system. So I'd probably try to concur, yes, the value will definitely in terms of increase the benefits of tax definitely flow into the pipe.

So I'm not too unreasonable with INR 200 crore PAT expectation. That is what I wanted to clear.

No, I can't say a number, definitely, but much -- the PAT level will be much better than what we have done in '18.

The next question is from the line of Jinal Sheth from Awriga Capital Limited.

Based on your cost reduction efforts and the automation focus. Can we touch mid-teens EBITDA margins over the next 2 to 3 years? Because also, I mean, the point being that in the past, our margins trajectory was higher and only in the last few years, they've kind of come down. So mix, combining all of this, do you believe that the margin trajectory can go back because it's a cycle of...

I would say, yes, there's a target we have taken, and we are working on it. And I think -- I don't want to say whether it'll come back, but that's the directionally that's what we are working, and we are confident that we can get -- to get to that level.

So just to understand one thing here that if I look at your gross margin, basically, we've seen -- is that being impacted by product mix over time? Or what would you attribute that to, from the 19%, 20% to around the 15% -- 14%, 15% in the last 5, 6, 7 years.

I think, see, that time the volumes used to be low, and we did not have competition. To be fair to say we were the only one company outside of the in-house manufacturing, we used to supply the OEMS. So -- and also, we had all the customers buying our product, there was no competition. Over a period of time, of course, the competition is also come into Indian market, and they're also trying to offer. So that got a little bit of impact, and we had to do work what was required to the market perspective. I think that's number one. Number two is the product mix is also a little bit of changed. Earlier days, we used to have the brake business for the separate business and the brake got merged into the -- merged into our overall business. So that adds a little bit of overall erosion in the margin because the brake margin is not as good as axle margin. I think there is a -- and as a commodity going up, as I said, that -- even though we get 100% recovery from the customer, but there is always a base impact when the commodity goes up and which we can't mitigate. So I think these are the multiple factors, which led to our overall margin erosion a little bit. And then if you really see last few years, we are -- other than last 2, 3 years, which is abnormal. We started gaining back the margin and our improvement -- year-over-year improvement has started happening.

My next last question is that if we look at what's happening with steel prices in India and the Europe and U.S., it's -- there is -- obviously, the pricing is lower in India. So while the logistic costs are higher with the RM being lower, would that kind of impact a possible uptick in exports for us?

It is actually acting otherwise, right, the logistic cost now, it is like unprecedentedly high. And it's not going to be viable for a heavy item like ours in terms of logistic costs. But still, it is -- I don't want to say this because the steel prices, the commodity prices are so unpredictable and so much of volatility. I don't think -- in general, what we are seeing is more or less international, it's just a matter of few quarters, or a -- we can't take a long-term strategic decision based on how the commodity prices move. Because in general, the commodity that are more or less, the pricings are all same across the world. Maybe it's just a variation in some few quarters, or few years, et cetera, but strategically, we can't make decisions based on how the commodity pricing moves between the countries and the continents.

The next question from the line of Mr. [ Varun Basrur ] from Julius Baer Wealth Advisors Private Limited. [Operator Instructions]

My question is more from a business economics perspective. I just want to understand the current gross block, what kind of peak revenue can be achieved, I believe, in FY '19, the gross fixed asset cover was in excess of 8x.

So I just answered in a very high level, right? We have a very, very big investment we did during '18, '19 time period. But unfortunately, after that, the market went down, we did not expect the market to go down. We did not expect the pandemic to happen. We expected that the market will continue to grow, and we did a big investment and that investment cycle is over. Other than the normal sustenance capital we need on a yearly basis. We don't need any significant capacity related investment. And that this -- no, I'm saying that currently, the capacity utilization is at around 60% level. You can say that 50%, 60% level, which means at 60%, if you're doing around INR 1,500 crore run rate, we can with the current capacity, overall, I'm saying that we can definitely go up to INR 2,500 crore plus kind of revenue levels, maybe INR 3,000 crore.

Sir, and my second question is a contribution of the current product portfolio to the cost of the CV, would it be around 3% to 12%. And with the new product development, what can this become?

Yes. We normally don't give our -- what we call it vertical or a segment wise financial split ups. So only thing I can tell is based on what the investments we have done, based on all the product development activities are happening, based on our activities with the customers. I've been explained about our Mission 25 strategy, the 6 pillars. Our endeavor is to -- continues to grow our penetration and our -- grow better than the market in terms of growth. We don't have no control over how the market behaves. But our challenge and our strategy is to outperform the market. Whether if the market is going down or should not be go down as like the market and when the market goes up, we have to go better than the market. That's what we do. And also continues to work on expanding our EBITDA margin. So these are the 2 primary pillars of our Mission 25 strategy. Out of the 6 pillars these 2 are very, very crucial for us, and we continue to work towards achieving these objectives.

My question, maybe I misunderstood. My question was more on the lines of our patent product portfolio, what percentage of CV cost is it?

So most of our revenue is from CV industry because, see, we are not playing in any other than CV and industrial and military. So industrial and military is one of the focus areas for us. We are planning to introduce new products and expand that market as well. Otherwise, majority -- again, we don't give you a split. We don't give you a split of revenue from the segment wise. But more -- majority of our current revenue is from CV.

We have next question from the line of Mr. Manish Jain as an individual investor.

Sir, I wanted to know basically who are our competitors? And how easy or difficult it is for a customer to change the supplier for our parts?

So as of now, there are 2 types of competition we have. #1 is an external competitor, which is mainly American Axle and Dana. They both are American companies. And then the other competition is the in-house manufacturers like Tata Motors, they make their own axles and we treat them as a competition as well. In our kind of product, it is extremely difficult to switchover. The switchover will -- if somebody who comes -- want to come up with a product to compete with us or we want to compete with somebody else, it is like at least 2 to 3-year kind of a time frame, and it's not easy. It has to be -- undergo the entire design and development cycle, validation and also it has to put on to the vehicle and then it has to go through the vehicle level validation. It is -- I'm not saying that it is very difficult, but it is a tedious and elaborate process.

And next question was, if we look at the external [indiscernible], what kind of market share will be having? Approximately, a rough number?

Again, we don't give these market share information outside. But we can say that we are far out -- if you consider as an outside supplier, if you take out the in-house manufacturing out of the equation, we are significantly ahead of competition.

We have next question from the line of [ Ms. Radha Agarwal ].

So my question was, recently, we have entered into the LCV, ICV and bus segment. So with respect to that, what is the total addressable market in that segment?

So actually, I don't want to say that recently we entered. But LCV, we play only 7.5 tonner and above. In India, we have a little different nomenclature in terms of LCV, ICV, et cetera. Our place 7.5 tonner and above. I think the market also behaves a little weird, I would say, because during the downturn, et cetera, the LCV and ICV do not get much impacted compared to the M&HCV. So the market -- the percentage of market segment varies depending upon how the overall economy does. If you see last 2, 3 years, the percentage of LCV, ICV are very high as a market compared to M&HCV. So during the peak 2 years, the percentage of M&HCV goes up and LCV and ICV remains little stagnant. So it bears very differently, depending upon how the market and economy is behaving. That said, I think the bus, we always used to be there in bus. Because in India still majority of the bus are -- the base is the truck chassis only. They are not -- the bus is not a very different product. It's more or less it's the truck product, they use it on the bus. So we are always there on the bus, but we have introduced few products specifically to increase our market share in the bus segment. But last 2, 3 years, the bus market is very, very low, unprecedentedly low because of the pandemic and the overall -- there are no schools, there are no offices, so bus market really fell. But I can't exactly say the addressable in terms of how much it is the market of overall perspective, it varies on year-to-year, quarter-to-quarter perspective. But the only thing I can probably give -- I know I'm not able to answer your question directly. What I can tell you is from 7.5 tonner and above up to the maximum, whatever it is, a 55 tonner. We have products to address across the segments.

So are we catering to axles, brakes and suspension, all 3 products in these 3 segments?

No. Suspense -- axles and brakes, yes. Suspension is only for M&HCV.

Also, my next question would be, so other than Ashok Leyland, which other customers do you see that there will be a good improvement in share of business in the next 2 to 3 years?

We see Daimler. Of course, Mahindra is there. We are very well presented -- present in Mahindra. Daimler is there, which we -- we are working very closely with Daimler to improve our penetration. We are already supplying significant amount of our axles to Daimler by Benz, I mean. Then Volvo Eicher is there, we are supplying to them. We are supplying to Tata also in some of the segments. So everywhere, probably we are supplying to all the OEMS, and we are working on to improve -- with each one of the OEMS we are working to improve the share. Whether it will translate into success or not, it's all depending upon some of the internal decisions what Tata or Eicher should take. But we are very well present in these companies. And like earlier, one question was there, when they would probably outsource. Our endeavor is be there with them whenever strategically, if they take a decision to outsource, we will be the company they will be talking to.

My next question is with this new R&D facility invested by the parent company Meritor, what benefit would our company -- what is the benefit that our company is expected to get?

2 things. Number one is we always used to have an R&D, but we really invested -- the Meritor is invested quite significantly to expand the R&D facility in Mysore. The 2 straightaway benefits, #1 some of the tests we had to send it to our other Meritor's other location for validation. So now all those validation can happen in Mysore itself, which means the time to market the new product has significantly reduced because everything is under the control, within India and also the logistic time is reduced. The priorities are different now. So #1 is the time to market anything what we want to do a change on the product and bring new products, the time is reduced because of the in-house -- the significant amount of validation facility we have in Mysore. The second thing, to some extent, cost is also reduced. The cost of validation, if you do it in America, is different than what if we do it in India. So these are the 2 direct benefits to Automotive Axles because of the Meritor's investment into R&D.

So in addition to the CV growth, what is the expected incremental revenue that we are targeting from exports and entry into LCV segment, slipper type suspension products and increasing share of business from the customer?

Yes. That is what we don't give the segment-wise breakup. But as I always mentioned, we will be growing faster than the market. You can see over a period of last few years, what is the market growth and what is our growth pace. You'll always see a gap of at least 5%, 6% better than the market, and we'll continue to do that.

So on this new product, is there any plan to introduce more products under the suspension product vertical?

Not at this point of time. At this point of time, we want to make this slipper type suspension, what we launched to come on board, and we [ don't ] want to ramp up and expand. Once that is done, we will start working on other variants.

How is the product traction for the slipper suspension?

Sorry, come again, Radha?

What is the -- how is the product traction for this new product under the suspension segment?

I think that actually, the product is very good compared to the existing suspension. But unfortunately, during our launch time, there is a significant transition happened from BS IV to BS VI and then the market fell down, then the pandemic, et cetera, that's why it's not doing as we expected to do in the market. But now, once the market now started picking up and the stabilization is happening, we see really good growth going to happen.

So just one last question. So in respect of our employee expenses, you've seen that it has been in the range of 6% to 12%, if you see for the last 10 quarters. So what could be the reason for that volatility in that range? And what would be the sustainable employee cost as a percentage of sales?

I think the -- we are able to maintain, see the employee cost is like a fixed cost. More or less, we are able to control our fixed cost and keep it constant, even though there is our country is in like an inflatory mode, as every year, there is an inflation in salary, inflation in fixed cost happens. But I would say that our inflation, if you see over a period of time, is not as high as the market inflation. So we are able, to some extent, mitigate through all the actions we take. But the percentage is -- varies because of the top line. The market when the market comes down, the percentage increases and the market goes up, the percentage comes down because it's a fixed cost. So -- but overall, we are able to maintain or control of fixed cost. It's not expanding, or it's not increasing equal to an inflation, otherwise, it would happen. I think whatever you see between 6% to 8% that is what probably we will maintain at that level.

There are no further questions. Now I would like to hand over the floor to the management for closing comments.

Okay. Thank you very much. I think every time I speak to all of you, it's all learning for all of us, and we take a lot of actions from your inputs and your questions. So I really appreciate the interest you have in our company and which will push us to do better and better year after year. I really sincere thanks to each one of you for participating and being here with us. And thank you very much. I will give it over to Sailesh, please.

Yes. Thank you, sir. Thanks for your time, and thank you all for participating. Thank you very much.

Thank you, ladies and gentlemen, this concludes your conference call for today. We thank you for your participation and for using iJunxion conference service. You may disconnect your lines now, and have a great day ahead. Thank you.